Corporation tax reforms 'needed'

Two studies have called for the reform or abolition altogether of corporation tax in order to protect British businesses.

The studies sponsored by the Institute for Fiscal Studies (IFS) established that the current tax system discouraged foreign companies from setting up their headquarters in the UK.

This is because, unlike most EU governments, dividends received by UK-resident firms from their foreign subsidiaries are taxed as well as profits earned in this country.

The studies also found that moving to a form of 'destination-based' corporation tax, levied where the sale of goods or service is made to the final consumer, possibly in the form of a higher VAT, would be beneficial.

Robert Chote, director of the IFS, lauded the findings, saying: "These studies lay out some interesting directions for reform, both to make the existing system of company taxation more efficient and to provide a long-term alternative if corporation tax revenue goes into long term decline."

The studies by Professor Sir James Mirrlees are part of his review of the British tax system.

Big British businesses have been lobbying for a review of tax laws in the country.